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7 Easy Ways to Cut Business Costs

Mike Michalowicz

CEO, Provendus Group

I am the author of Profit First, The Pumpkin Plan and The Toilet Paper Entrepreneur

You don’t have to go into debt or compromise quality or performance to cut business costs. There are significant ways to save money without compromise. How? Most of the techniques revolve around “productivity transfer,” where you get the same results by using alternative resources at a lower cost point. Here’s how:

1. Use the power of pooling. Pooling takes some effort, but the savings can be huge. First, reach out to other businesses in your industry that buy from the same suppliers as you do. Now, pool your combined purchasing power, and determine the savings you want; for example, a 25 percent cut. Then go to all the suppliers and tell them that you are all going to buy from the one vendor who offers the best price—and agree to work exclusively with that one supplier for a period of time (I suggest minimally three years). The big numbers are very attractive to your suppliers, and they're likely to offer you a bargain.

2. Hire contractors. Full-time employees don’t necessarily work full time. If you don’t have work for employees, you’re paying them to be idle. Consider hiring contractors, where you only pay for the hours worked. (I personally use Elance.) It's a win-win in many circumstances—your contractor makes more per hour (and can serve multiple clients), while you pay for only what you use. Contractors are often extremely talented at what they do, so you also get high-quality services. It's still crucial to have a core talent, one derived from full-timers, but not everyone on your team needs to be full time.

3. Seize the opportunity. Unused advertising is one of my all-time favorite methods of cost-cutting. Billboards, signs or websites of closed businesses often have a number that’s still displayed. Call your local phone company and find out if the number has been disconnected; if so, have that number redirected to you. Instant prospects! When customers call, let them know the business they were calling is out of business, but that you are there to help them.

4. Change your phone system. Telephone systems are expensive—really expensive. But by combining a few free, and near free, services you can save tons of money, and the quality and flexibility of your system may increase. Try using Free Conferencing for free conference call services; Skype’s premium business phone (which is less than $5 a month) is great; and Grasshopper has a virtual phone system that can cover as many employees as you want.

5. Explore office space options. The recurring cost of renting office space is usually the largest cost on an income statement. Good times or bad, every month you’ve gotta pay that rent. You have three options that can save you big money. First, convert your business to a virtual presence. You can have your employees work from home and get rid of the office in its entirety. Second, approach other spaces that already have tenants committed to long leases. More and more tenants have extra space, and you may be able to pick it up on the cheap. Third, renegotiate with your landlord. With a soft demand for office space, landlords are becoming more flexible on the rent, to keep you in.

6. Embrace a lack of experience. There’s a whole workforce of talent that most companies overlook—interns and people with disabilities. They have the talent and intelligence, but not much experience. Reach out to the local colleges for interns, and contact organizations that can help you hire people with disabilities. Both represent talented, hardworking people who simply don't have a lot of experience, and therefore are at the low end of the pay scale. We all started there!

7. Practice bottom line responsibility. One of the most overlooked methods of radically cutting costs, without compromising the business in any way, is to seek guidance from your own team. Have a company-wide meeting and educate your employees on the P&L and the need to cut costs. Empower them to bring suggestions to the table and to act on them directly. One company, for instance, had an employee who suggested everyone bring in a coffee mug from home instead of using disposable cups. It saves the company $100 a month. Similar ideas were implemented throughout the company, and the company turned profitable as a result.